25 Tips for Finding the Best Mortgage
Many people dream of becoming homeowners one day. In many cases, people believe this achievement is an essential part of achieving the age-old American dream. In today's market, however, it can be rather difficult to obtain a home because mortgages can be a hassle to deal with in and of themselves. This task does not need to be such a chore, though. The first thing to do is to call around and ask some information from various lenders before going to the next step of starting a mortgage application. To smooth the process out a little more, here are 25 tips to finding the best situation possible.
1. Perform a Free Credit Check
In most cases, a free credit check can be performed early in the window-shopping experience. This information will provide the homebuyer with as much information about their options as possible. People who are business owners or who have experienced a foreclosure in the past need to be aware that these situations greatly affect their credit rating, which can also affect the loan types that are available and the various interest rates involved.
2. Make Yourself More Attractive
In many instances, people's credit checks do not always turn out to be what they would have hoped. This downside can lead to strains being placed on you to find the right lending situation. If you have the option, try taking out a credit card with a low limit to help build your credit a little bit before going on the hunt for mortgages. Lenders prefer to give their funds to people who so they can go about paying their bills on time, and this type of credit card is a low risk to prove that point.
3. Do Some Budget Math
It is best to walk into an application interview with a lender to be prepared. First and foremost, you need to consider what your budget restrictions are before the meeting. Look at all the incoming funds and compare them against what bills and living costs are outgoing. This comparison will shed some light on what type of monthly payment you can afford for your new home, which might limit or broaden the types of lending situations that are available to you.
4. Understanding Pre-Qualification
The first item on the docket is pre-qualification. In many cases, once the house shopping tasks begin, letters from lenders are sure to start coming in the mail. Most of these letters offer terms of pre-qualification. In most cases, the home buyer needs to call the lender who sent the letter and answer a few questions. Typically, information about income, assets, debts, and other kinds of financial specifics are requested to begin the pre-qualification process. It is important to note that this pre-qualification does not come with a guarantee. It is more of an informal quote. It is, therefore, an optional step to the process in most cases.
5. Understanding Pre-Approval
The next step pre-qualification usually leads to is to gain pre-approval on mortgages. If a pre-qualification is not sought, then pre-approval is the initial step in the process. Pre-approval requires submitting a complete application to a lender. A credit check will be done, which will be combined with the information about the home that has been chosen for purchase. If everything goes according to plan and checks out positively, then a lender might finance the home and head toward closing the deal. However, some people will have to meet some conditions as to gaining their mortgages. For example, someone with poor credit might require a higher down payment than for people who have better credit.
The final step in the process is the closing event. When everything comes together, and the application successfully processes, closing procedures begin. In this meeting, the lender hosts the person selling the house, the person buying the house, and their realtors for the sake of finalizing all paperwork. At this point, the person purchasing the home becomes the official homeowner, and they are expected to turn over the keys to the home at that time. It is also important to note that, unless otherwise negotiated, the person selling the home needs to be out of the house by the closing date.
7. Types of Loans
There are a few, different types of loans that are available to home buyers. Some are more traditional than others, but it can be confusing about which one to take. The first step to buying a home is to consider the various types to know which one they can get and which one fits their needs the most.
For military veterans of the United States, a loan from the Department of Veterans Affairs might be an option. A VA loan is only for veterans, though. In the way of mortgages, they can require as little as no down payment, depending on the situation. Usually, veterans must qualify for these lending situations, though.
Another option for people who are not military is to gain a loan through the Federal Housing Administration (FHA). An FHA loan requires as little as a 3.5 percent down payment, so long as applicants qualify for sure offers. For people who do not have much in the way of cash reserves, this option is a great one to consider. However, it is important to note that in cases of where a down payment less than 20 percent of the mortgage's final totals, the loaner is required to pay for private insurance. This insurance is paid for a monthly basis, and it covers a homeowner with security in case the loan goes into default.
Conventional mortgages are some of the most traditional types available. In most cases, these mortgages require at least a 20 percent down payment, so they do not require private insurance to be purchased. This loan type is the best bet in situations where a hefty down payment can be made, and it also means that savings can be made on the closing costs.
In some instances, mortgages can come in jumbo packages. In this case, when more than one home falls under conventional mortgages, then they can be combined. To make jumbo mortgages, the convention mortgages being considered must conform to loan limits. As of 2010, most parts of the United States relied on $417,000 as their conforming limits.
8. Consider Financial Laws and Practices
On the quest to find the right lender, you need to take into consideration some laws about financing homes. First and foremost, are there any limitations on you because of bad credit? If so, this task needs to be investigated closely. In this way, you will not be surprised when you go to the financial institution being chosen by shady tactics.
9. Look at Potential Options for Funds
In many cases, people can ask for a quote from a few, different lenders. This information can be compared to the information gathered by looking at what funds would be available for your monthly budget. This task allows people the chance to meet with a lender will work the best with their financial needs.
10. Look at Lenders and Brokers
There is a good chance that people will have the chance to work with either a broker or a lender. Brokers might be able to gather information from multiple lenders and provide different quotes. However, working with a lender opens the idea for people to do more window-shopping on their own. This step allows for lenders who do not work with brokers to be found and utilized.
11. Look for Lenders Who Offer Life Insurance
Once a person starts to pay on a home, they will want to make sure that home's cost is insured. Therefore, some lenders work with life insurance agents to make sure there is money in place for the home to be paid off if the homeowner passes.
12. Look for the Right Lender
Considering the right lender needs to start with knowing which loan program from the list above is being preferred. Some lenders do not participate in these programs, so deciding which loan program to go with first will help to narrow down the lenders to consider. Some lenders specialize in these types, so they are often the best bet to comparing options early on.
13. Repaying the Money Borrowed
When it comes to the different types of a loan that is available, there is one thing that needs to be considered most. That key feature is the repayment terms. Most people pick mortgages with a repayment term of 30 years. For people who can afford higher monthly payments, they can opt to go with 15, 20, or even 25-year mortgages instead. Again, the key thing to note here is the fact that monthly payments will be higher for the fewer years that are dedicated as the loan's term. People who decide to go with shorter-term mortgages are benefiting themselves in the long run because it means less money will be spent in the long term. This situation is true mostly because there are fewer years of play for which interest can be charged. There are several types of rates too, which dictates the amount of interest that will be applied. Therefore, these rates have a large impact on how much money is being repaid to the lender for their services.
14. Understanding Fixed-Interest Rates
The first of the most common types of rates are fixed-rate mortgages. This type of loan is safer for families that plan to stay in a home for more than a few years, meaning it is not a starter home of any kind. Because people typically can also pay on shorter terms in increments of 15, 20, or 25 years, they are able to take great advantage of a fixed-rate contract. In this case, the rate does not change, so it means fewer increases due to interest will apply.
15. Understanding ARM
The other type of rate for mortgages is the adjustable rate mortgage. With adjustable rate mortgages (ARM), people can save a lot of money if they are only going to be in the home for a short period of time. The interest rate is even lower for people in this situation. The rate remains the same for about five to seven years, and then it adjusts to the average interest rate every year after that. Therefore, payments can become much higher after this time. For people who still own the home now, the payments can become cumbersome. However, it is a risk for people who want to remain in the home for a long time.
16. Different Types of Interest Rates to Consider
Staying on top of the current, going interest rates available is a featured task that needs to be maintained virtually all the time during the buying process. The latest interest rates can be gained by calling different lenders to compare what rates they are offering at that, given time. If the rate is at 4.5 percent in the morning, and it rises to 5.0 percent at the end of the day, this difference opens an opportunity to negotiate for something in-between or even better. Some lenders offer this information online, but it might not be as up-to-date as what might be gained from making a direct call to the lender.
17. Looking for Reward Systems
Some lenders offer a reward system for people who pay on time or ahead of schedule on their loan situation. In many cases, these reward points are used as pre-paid interest. For most lenders, one point equals out to one percent that can be paid on the loan's amount. The more points that are gained upfront, then the lower the interest rate will be over time.
18. Annual Percentage Rate
There is another type of interest rate called an annual percentage rate (APR). It is important to note that there is a difference between interest rates and APR, even if people use these terms interchangeably. The APR indicates the true cost of gaining a loan, which also includes points that are gained, too. It also looks at the interest rate, broker fees, and any other fees or taxes that might be in play. Looking for the lowest APR is essential when mortgaging a home. Once more, it means spending less money over time.
19. Opting to Lock in a Rate
People who qualify for the option can lock in a rate at the time of pre-approval. A document can be requested now that indicates everything from the points that are gained, that the rate is locked in, and how long the offer will last on the loan and what happens when that percentage expires.
Locking in interest rates is a means of making sure that the best rate is gained and maintained as possible. Therefore, if rates fluctuate during the years of that locked in rate, and then the homeowner is not affected by the increases. There is one drawback to this option, though. If a lower rate becomes available down the line, the locked-in rate will still be in play. Therefore, timing when to go about gaining a loan with a locked-in rate that is low is essential to gain as best of a lending situation as possible. This decision needs to be solidified the closer a person is to make a purchase on a home.
20. What to Look for When Going with a Loan
First things first, there is a comparison that must be made between chosen loan situations. They should be compared right there, side-by-side. In many cases, this comparison is referred to being "apples to apples." There are instances, though, where an orange might stand out during this comparison as the best decision to go with.
21. When in Doubt, Ask for Good Faith
When it comes to starting the application process for pre-approval, the buyer can ask to see the Good Faith Estimate worksheet. The Good Faith Estimate is required to be done by law, and it helps the consumer to decide what they want out of a potential contract. In many cases, it provides a glimpse into what the loan will end up looking like in the end. Also, it is important to note that the worksheet should include itemizations for all fees that are involved.
22. Do Not be Afraid to Shop
The best idea when looking for a finance firm is to shop around. There is nothing wrong with taking the time to sit down and do an interview of sorts with the person who will be handling the loan application. Asking about their experience and qualifications at this time is appropriate. At the same time, do not forget to ask about what their licensures are. This information will gauge whether this broker is the right person for the job. Do not hesitate to ask for someone else if the company is the preferred lender but the person that was initially put on task is not to standards.
23. Ask the Broker the Hard Questions
Make sure the broker stays on his toes throughout the process. Make sure they gain all the information they need, and then some, about the financial situation at hand so they can go about doing their job armed to the brim with details.
24. Look Ahead for Extra Costs
Some people are caught off guard when they find that there are costs hidden throughout the term of their loan. Therefore, asking for information on all the costs associated with the loan is explained up front. Some additional costs that might not be charged by the lender include property taxes, escrow requirements, title insurance, and real estate transfer taxes. The last one only takes place if the seller comes from a separate real estate agency than the purchaser. In some cases, not these costs will be covered by the mortgage. Therefore, they must be gathered and submitted at the time of the down payment. At the same time, there might be higher percentages of interest on the final payment if it is made too far ahead of time.
25. Seek Out a Home Inspection
Before deciding to close on a home, do not be afraid to ask for a home inspection. This step allows a greater insight into what the home is really like. If any repairs need to be done, or if parts of the house are condemned, then it will become known to the homebuyer now. In this case, the buyer is given the chance to back out of purchasing the home, so the process will automatically halt on that house.
Going about buying a home does not have to be a difficult task. In most cases, gaining a home lending situation is a rather smooth-sailing kind of task once all the correct information is gained. Having the right loan agent or broker to make the process go even better is essential.